The best place to start in understanding crypto and blockchain is with bitcoin.

Bitcoin was
the first cryptoasset and today is the largest, and the breakthroughs that allowed bitcoin to
emerge underlie all other blockchain and crypto projects.

Bitcoin can be approached from two complementary perspectives: as a solution to a

longstanding technical problem and as an economic phenomenon that allows people to do
things they could not have done before.

As an initial reason why bitcoin (and the broader blockchain space) is important, consider
this strange fact about modern life: Although much of our lives have migrated online,
money remains stuck in an analog age.

We do not think about this reality much because we have slick fintech apps and online bank
accounts, but the underlying plumbing of our “modern” financial system is archaic.

Allowing money or items of value to move the way text messages do between any two
people and without any central intermediary requires a different solution.

Nakamoto’s solution to this problem (and the core idea behind all blockchain databases
today) was to create a single distributed database that is accessible to everyone—where
anyone in the world can view balances and submit transactions at any time—but where the
ledger is not controlled by any single corporation, government, person, or entity. In other
words, a “distributed ledger” that is “permissionless” and is maintained on a “decentralized”
basis.

The figure shows how this kind of distributed and decentralized database is structured and
how it allows value to transfer directly on a peer-to-peer basis, without a trusted central
intermediary.
This is the real breakthrough of blockchains: creating timely, bad-actor-proof consensus
across all copies of a decentralized and distributed database. Doing so involves a cascading
series of technological steps governed by clever incentives, cryptography, and other
technological advancements. These steps lie at the heart of both the opportunities and the
challenges created by blockchain applications, so understanding how they are structured
and work is worthwhile.

Insert -> The Concept of Blockchain – Can get into as much detail as I want. But should give
a very very high level view.

# Can loop the portion on the crypto landscape – can start by asking the question that if the
BTC ledger was there, what was the need to create multiple tokens?

What impact might this new database architecture have on the world?

Answering that question is not easy. Attempting to do so is somewhat like trying to guess in
the early 1990s how the internet would change the world. The internet clearly represented
a new way to distribute information and could have major consequences, but moving from
that to predicting that people would, for example, regularly use smartphones to rent out a
stranger’s house rather than staying in a hotel is a whole different matter.

Similarly, blockchains clearly represent a new way to transfer valuable assets and money,
but moving from that to precise predictions of future applications is fraught.

Capability 1: Rapid, Low-Cost, 24/7 Settlement

Consider this transaction: On 12 April 2020, someone transferred 161,500 bitcoin—worth

more than $1.1 billion at the time—in a single transaction. The transaction settled in 10
minutes, and the fee for processing the transaction was $0.68. Contrast that with an
international money wire, which can be sent only during banking hours, takes one to two
days to settle, and has fees ranging from 1% to 8%.

The difference is startling. An unmanaged software network with zero employees can settle
a $1 billion-plus transaction in minutes, whereas the largest banks in the world take multiple
days to move $5,000 abroad. In addition, bitcoin transactions can be sent at any time of day
or night and from any location around the world to anywhere else.

In the first half of 2020, the fees for bitcoin transactions amounted to just 0.019% of the
volume transacted. These efficiency gains do not mean we are going
to be buying coffee with crypto anytime soon; tax, price volatility, user experience, and basis
risk considerations make day-to-day consumer purchases with bitcoin unlikely today. But
this kind of settlement speed represents a material improvement for many other types of
transactions and use cases, including large transactions and transactions for which the
current financial system charges very high fees (e.g., international remittance, wires). This is
an area to watch.

Capability 2: The Creation of Scarcity and Property Rights in the Digital World
Perhaps the biggest breakthroughs that cryptoasset-powered blockchains have facilitated
are the related concepts of digital scarcity and digital property rights.
Historically, the only way to “own” something online has been to have your ownership
recorded by a trusted third party in a proprietary database. For instance, your broker keeps
track of what stocks you own, your bank keeps track of what balances you own, video game
companies keep track of in-game purchases, county clerk offices keep track of land titles,
and so on.

Cryptoassets flip that system on its head. Because the underlying blockchain database is
available to everyone without being controlled by anyone, cryptoassets can provide
ownership guarantees that were previously nonexistent in the digital world. In fact, one
could argue that the ownership assurances blockchains offer are stronger than most of the
ones we have in the physical world.

Many people talk about bitcoin as “digital gold” specifically because it introduced the idea
of digital scarcity to the world.

Digital gold, however, is not the only potential application for digital scarcity. A bustling
corner of the crypto industry is what is known as nonfungible tokens (NFTs), which the
gaming industry is exploring.

Imagine a video game that allows players to own an item, such as a special sword. What if
you wanted to sell that sword to someone on eBay?

How would they know you own it? How would you transfer it to them? The NFT vision is
that players can prove they own a specific asset, can trade that asset with other players
whenever they see fit, and might even do so outside the confines of the game.

Another example of experimentation with scarcity is the digital equivalent of traditional

sports trading cards. One startup is working with the National Basketball Association (NBA)
and the National Basketball Players Association to produce digital playing cards.16 Oddly, in
2020, even though much of our lives takes place online, kids and collectors have not yet
embraced digital playing cards. But without a blockchain, the scarcity value of an online card
disappears: You could just copy and paste the image of a card you wanted and say you had
it. With a blockchain, ownership can easily be proven or disproven.

You can cover other use cases of NFTs here like music royalties and NFTs with real assets
linkage as well. Cover Real Estate here. Cover the aspect of experimentation and how it will
be useful to implement real world cases.

Anticipating what creative entrepreneurs will devise to leverage the technological

breakthrough of digital scarcity and digital property rights is difficult. But this is a powerful
concept that provides a way of doing things that was not possible before—and another
place to watch for innovation.
Capability 3: Digital Contracts (“Programmable Money”) #DeFi

The final advance worth considering is that cryptoasset-powered blockchains allow users to
effectively program money with certain rules and conditions, as you would program any
software. These digital “smart contracts” can be created, reviewed, and enforced easily,
instantaneously, and with virtually no cost.

With money programmable like software, you can create transactions with such conditions
as the following:

Alice transfers cryptoasset X to Bob, but only after Carol agrees—which looks a lot like an
escrow account.
Alice transfers cryptoasset X to Bob, but only after a certain amount of time—which
looks a lot like a trust.
Alice sends cryptoasset X to Bob, but only if Carol wins the race; if Carol loses, Bob sends
cryptoasset Y to Alice—which looks a lot like a contract

Blockchains allow these and many more-complex transactions to be executed without the
need for trusted intermediaries. In so doing, smart contracts aim to replace or augment
many of the core functions provided today by banks, lawyers, accountants, escrow agents,
and notaries, albeit in a way that is cheaper, faster, more transparent, open to all
participants, and available 24/7/365.

The ability to program money with conditions and digital contracts.

# Smart contract examples, Micro insurance, PBOC programmable currency and its impact
on fiscal and monetary policy.
Etherisc teams up with Chainlink to deliver crop insurance in Kenya

UNDERSTANDING THE CRYPTO LANDSCAPE

Bitcoin is not the only cryptoasset. According to the popular data aggregator
CoinMarketCap, more than 6,000 different cryptoassets exist, and many new ones are
created each month. Although most of these assets are small, many are valued at more than
$1 billion.

Why does more than one cryptoasset exist?

Does the existence of thousands of cryptoassets damage the “scarcity” of an asset such as
bitcoin?
Do you need a cryptoasset to have a blockchain?

FAQs

Q1 -> Why does more than one cryptoasset exist?

Multiple cryptoassets exist and are thriving because their underlying blockchains are
optimized for different uses. The blockchain technology tied to each cryptoasset is simply
software. Any two blockchains are similar types of software, but they can be programmed to
serve very different uses.
Consider this analogy: Both Microsoft and Oracle are software companies, but their
software products are designed to do different things.

The impact of these optimizations is best explored by comparing bitcoin’s blockchain

with that of the next-largest cryptoassets.

Bitcoin’s blockchain—the first ever launched—is in certain ways simple. As a piece of

software, it allows for only a very narrow set of types of transactions: You can program it to
send, receive, or hold bitcoin and to set up very simple escrow- and trust-style accounts.

Ethereum, the second-largest cryptoasset by market cap, was conceived in 2013 and
launched in 2015 with the idea of expanding that list of capabilities. In fact, Ethereum’s
developers designed it to be “Turing complete,” a computer science term that means it can
be programmed to do anything a general computer can do. By offering the ability to
program any type of transaction, Ethereum has established itself as the platform of choice
for the “programmable money” use case. To date, people have replicated everything from
collateralized loans to IPO-style fundraising efforts using Ethereum-based “smart contacts.”

People have even built fully functional decentralized asset exchanges, which rely on
software-based automated-market-making programs to facilitate liquidity and have
supported billions of dollars in crypto trades.

One might assume that this additional flexibility makes Ethereum a “better” blockchain than
bitcoin, but this functionality comes at a cost. One core tenet of cybersecurity when
programming software is to “limit the attack surface.” In practice, for the crypto/blockchain
space, this means that the simpler a blockchain is, the more secure the technology is. It is
common sense: Just as a book is more likely to have a typo than a single sentence, a
complex computer program is more likely to have a bug or vulnerability than a simple one.
Bitcoin’s simplicity is part of what makes it extremely secure and what gives people
confidence putting large sums of money into it—perfect for serving as “digital gold.”
Ethereum’s flexibility and dynamism entail a level of technical risk that would be
unacceptable for bitcoin but that allows other interesting applications to flourish.

# More on ETH; Decentralised App Store; NFTs on Top; The ETH Stack; etc

# Breakup on various cryptocoins – Other L1s, L2s, Oracles, Governance Tokens, Meme
Coins (Social Construct), Stablecoins, etc.

The aforementioned trade-offs—between security, programmability, and speed—are the

three biggest trade-offs that blockchains must consider. And the aforementioned markets—
digital gold, programmable money, and payments—are the three biggest markets that
crypto is tackling today.

Other points of differences include: Governance, Privacy, Consensus Mechanism, Specific

Use cases, etc.
The likelihood that a single cryptoasset will come to serve every market need seems low.
Some degree of specialization typically exists even in network-effect businesses. For
instance, in the realm of social networks, Facebook is used extensively for social
connections, LinkedIn for work, WhatsApp for chatting, and so on. Something similar seems
likely to emerge in the crypto space.

Q2 -> Does the existence of thousands of cryptoassets damage the “scarcity” of an asset
such as bitcoin?

As an analogy, duplicating the software code that powers Facebook would be relatively
easy, but recreating the network that makes it one of the most valuable companies in the
world would be extremely difficult. Similarly, cryptoasset powered blockchains are
proprietary networks that form around non-proprietary software.

Q3 -> Do you need a cryptoasset to have a blockchain?

Why not just create a blockchain without a cryptoasset?

Many people understand the value that blockchains bring to the world, but they are
uncomfortable with the idea of an independent cryptoasset, such as bitcoin, and its
accompanying high levels of volatility or with the concept of a decentralized network that
might be difficult to regulate or control.

Can you get the advantages of a blockchain without the cryptoasset?

At the heart of the question about blockchains versus cryptoassets is the issue of “public,
decentralized blockchains” versus “private, centralized blockchains.”

Public, decentralized blockchains, such as bitcoin, require a cryptoasset to function, in part

because the issuance of that cryptoasset provides the economic incentive for miners to
maintain the network.

You can, however, have a “private blockchain” that uses much of the same distributed
database architecture components as bitcoin but that has a company that sets up,
maintains, and controls the network and provides the economic incentives for it to function.
In a private blockchain, the company or entity in charge decides who gets to participate in
the database, can block or reverse transactions, can determine what privileges different
members get, can rewrite the rules, can shut the blockchain down, and so on.

#Warnings

Past Returns != Future Returns

High Volatility & Leverage – Market Manipulation
Not an inflation hedge -> Digital Commodity
Custody
Taxation
Regulation

# Recommendations

0-5% optimal allocation without having significant impact to volatility and drawdowns
Think of the asset class as digital commodities
Use exchanges which are safe and that have on/off ramps
If possible, store crypto in a cold wallet
Long Term -> Reduce taxation impact
Read more. Lots of alpha making opportunities. Experiment.

Institutional clients traded $1.14 trillion worth of cryptocurrencies on exchange Coinbase,

up from just $120 billion the year before, and more than twice the $535 billion for retail.